MM Insurance News 03/09/18

CASES OF CONSEQUENCE

SECOND CIRCUIT Waiver and Estoppel/3420(d) (NY)

The Second Circuit has reversed a lower court’s ruling that an umbrella liability insurer was estopped to dispute coverage based on its failure to timely deny the claim. In Citzens Ins. Co. of America v. Risen Foods, LLC, No. 16-4166 (2d Cir. Jan. 22, 2018), the Second Circuit declared that Section 3420(d) did not apply because the underlying claim involved an owned vehicle that was insured by State Farm under an auto policy that was not listed on the schedule of underlying insurance for the Citizens umbrella policy and because the umbrella policy only extended auto insurance to hired and non-owned vehicle. In keeping with its earlier opinion in NGM Insurance, the court ruled that there estoppel did not result if the loss was not covered in the first instance.

CALIFORNIA “Occurrence”/Negligent Supervision

The state Supreme Court heard oral argument this week in Liberty Surplus Ins. Corp. v. Ledesma & Meyer Construction Co., S236765. At issue is an August 22, 2016 certified question from the Ninth Circuit asking the court to answer “whether there is an "occurrence" under an employer's commercial general liability policy when an injured third party brings claims against the employer for the negligent hiring, retention, and supervision of the employee who intentionally injured the third party.”

CALIFORNIA Civil Procedure/Bad Faith

The Court of Appeal has set aside a $54 million bad faith verdict against AIG due to errors by the trial judge in allowing the insured to interrogate a company representative with respect to discovery responses that she had verified, the judge's own "intensive questioning" of the witness, and judge’s mishandling of the representative's subsequent invocation of the Fifth Amendment privilege after the judge made a preliminary finding that she had perjured herself in her earlier testimony. In a 54 page opinion, the First District ruled in Victaulic Co. v. American Home Assur. Co., A146617 (Cal. App. Feb. 26, 2018) that it was error to interrogate the witness concerning responses to Requests for Admission that she had merely verified and had not herself personally prepared as that the denial of a request for admission is not evidence that is admissible at trial. The Court of Appeal also criticized the trial judge for his active intervention in the examination of the witness and his pointed comments with respect to claimed inconsistencies in her testimony as to whether the "potential for coverage" was determined differently in claims handling as opposed to coverage litigation. While acknowledging the right of the trial judge to ask questions during the course of a trial, the Court of Appeal ruled that in this case the trial judge had openly mocked the witness and acted as an advocate on behalf of the policyholder plaintiff.

ILLINOIS Asbestos/”Occurrences:”

The Illinois Appellate Court has ruled in United Conveyor Corp. v. Allstate Ins. Co., 2017 IL App. (1st) 162314 (Ill. App. Ct. March 2, 2018) that a product manufacturer’s asbestos liabilities resulted from the "single occurrence of continuous manufacturing and selling ash‑handling conveyor systems containing asbestos parts." Notwithstanding the insured's effort to distinguish cases such as Nicor and U.S. Gysum, the court ruled that the same analysis should apply whether the question is a single occurrence for purposes of determining the deductible for which an insured is responsible or the liability limit that an insurer must pay.

NEBRASKA Additional Insureds/Indemnity Obligations

Where an insured entered into a contract that required it to maintain coverage “not less than” $5 million and to include Union Pacific as an additional insured, a federal district court has ruled in Union Pacfic Railroad v. Colony National Ins. Co., No. 13-84 (D. Neb. Feb. 23, 2018) that $5 million was the “ceiling” of UP’s rights and not, as UP contended, merely a floor. While ruling that Colony National was not obliged to provide the full limit of its $5 million umbrella liability policy and was entitled to a $1.25 million credit for the underlying primary policy and SIR, the court declined to grant judgment for Colony National on its argument that UP had no rights under this policy insofar as it was independently to blame for a fatal car crash with one of its trains.

NEW YORK Disparagement

The First Department has ruled in Carfax, Inc. v. Illinois National Ins. Co., 2018 NY Slip op 01409 (App. Div. March 1, 2018) that claims by competitors that Carfax sought to monopolize the car history business by designing web sites that “stigmatized” vehicle history reports from other provisions that sought to disparage and falsely malign dealers in order to convince customers that only Carfax reports were accurate failed to set forth a covered claim for “disparagement.” The Appellate Division ruled that these passing references to “disparagement” were all in the context of anti-trust liability and did not set forth a basis for finding a covered “wrongful act.”

UTAH Bad Faith

The Supreme Court of Utah has issued a revised opinion in Fire Insurance Exchange v. Oltmanns, 2018 UT 10 (Utah Feb. 28, 2018), confirming that the decision of a homeowner's insurer to commence a declaratory judgment action against its insured to clarify the scope of its coverage with respect to an accident involving a water craft was "fairly debatable". In affirming the ruling of lower courts that the insured was not entitled to recovery of its attorney's fees for litigating this coverage action, the Supreme Court rejected the argument of various concurring justices who suggested that a distinction should be drawn between first and third-party insurance claims and that insurers should defend all third-party liability claims that could "conceivably" fall within the scope of coverage.

OTHER DEVELOPMENTS OF NOTE

* * * Inside the Insurance Industry * * *

In what may be the largest ever acquisition of a U.S. insurer by a European company, AXA SA announced this week that it plans to pay $15.3 billion to purchase XL Group Ltd. Nautilus Insurance announced last week that Tom Joyce is assuming the title of Chief Underwriting Officer. Joel Lasky will succeed Joyce as Chief Claims Officer.

* * * Opioids * * *

The Justice Department has asked a federal judge in Cleveland to give it an additional 30 days in which to decide whether to intervene on behalf of the plaintiffs in their suit against Purdue Pharma, Johnson & Johnson and other pharmaceutical companies for over-marketing addictive drugs.

* * *Sexual Abuse Claims* * *

Boston is back in the middle of prominent sexual abuse scandals. The U.S. Olympic Committee announced that it has hired Ropes & Gray to investigate the circumstances that permitted Larry Nasser to molest dozens of ice skaters over the years. Meanwhile, Michigan State University has hired supermediator Paul Finn to administer a $10 million fund for Nasser’s victims.

* * * New Coverage Litigation of Note * * *

Chubb filed suit against Harvey Weinstein last week, seeking a declaration in Federal Ins. Co. v. Weinstein that its several homeowners policies do not cover sexual assault claims that numerous women have made against Weinstein.